Currency futures market in India: an empirical analysis of market efficiency and volatility

Golak Nath and Manoel Pacheco

Macroeconomics and Finance in Emerging Market Economies, 2018, vol. 11, issue 1, 47-84

Abstract: As the Indian currency futures market has been in existence for over 7 years, this paper analyses the effectiveness of the 1-month USD/INR currency futures rates in predicting the expected spot rate. The volatility of the USD/INR spot returns was also analysed. Modelling volatility of the USD/INR spot rate using a generalized autoregressive conditional heteroskedasticity (GARCH) and exponential generalized autoregressive conditional heteroskedasticity (EGARCH) model indicated the presence of volatility clustering. Using multivariate GARCH models such as the constant conditional correlation and dynamic conditional correlation, signs of a volatility spillover between the USD/INR spot and currency futures market were also observed.

Date: 2018
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DOI: 10.1080/17520843.2017.1331929

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